will tap into the global market, and equity investment is a natural choice for their expanding business needs," said Zhao Xijun, financial professor at the Renmin University of China. "Through cooperation with leading foreign players, domestic banks will gain experience and deeper understanding of the global market."

Under the partnership, the two parties will jointly exploit international business opportunities, including cross-referral of clients, extensive training and talent management and collaboration in commodity products.

CDB will use Barclays' global presence to identify and to recruit talent outside China, and will benefit from the provision of extensive training and the regular reassignment of managers from Barclays. CDB will also use Barclays Global Investors as one of its preferred asset managers.

Furthermore, Barclays will provide expertise and advice in fields including risk management, corporate governance and IT strategy and procurement.

Meanwhile, the link with CDB will in turn provide Barclays with improved access to the Chinese market, while other British banks like the Royal Bank of Scotland, HSBC and Standard Chartered have penetrated the Chinese market by paying billions of dollars for stakes in Chinese companies.

Depressurizing foreign reserves

On hearing the news that CDB had purchased a stake in Barclays, Tao Dong, Chief Economist of the Asia-Pacific region with Credit Swiss First Boston, thought it was beyond expectations but within the bounds of reason. The large investment amount and size of the partner were unexpected, he said. But it is reasonable considering that many Asian countries, with the increasing amount of foreign exchange reserves, have transformed from major receivers of international capital to being large sources of capital outflow. Meanwhile, large amounts of Asian capital are being diversified and are being transferred from fixed-return products like government bonds from Western countries into other areas. "This kind of cases will happen sooner or later, and the number will also increase," said Tao.

Wang Yuanlong said that this kind of overseas investment will inevitably use foreign exchange reserves, helping relieve the pressure from glutted reserves.

"The acquisition is also a kind of capital outflow, which is beneficial to reduce the surplus of international payments," said Sun Mingchun, economist of Lehman Brothers Asia. "China has to set up a state investment company to manage its reserves, but if there are more and more companies investing overseas like the CDB, the imbalance of the international payments can also be changed.

"Not only banks, Chinese coal enterprises and automakers can invest in well-performing foreign companies," continued Sun.

Facts and Figures China Development Bank (CDB) CDB, founded in March 1994, is under the direct leadership of the State Council of China. CDB has been a major player in long-term financing for key projects of infrastructure development, basic and pillar industries, and hi-tech industries, which are vital to the development of the national economy. At present it has 32 branches and four representative offices across the country. As of the end of 2006, CDB had total assets of 2.314 trillion yuan. Net profits reached 28 billion yuan. Its non-performing assets ratio was 0.75 percent and its capital adequacy ratio, 8.05 percent. As of June 30, 2007, total assets of CDB had reached 2.4773 trillion yuan, with a non-performing assets ratio of 0.68 percent. Source: www.cdb.com.cn Barclays PLC Barclays is a major global financial services provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services, with an extensive international presence in Europe, the United States, Africa and Asia. It is one of the largest financial service companies in the world by market capitalization. With over 300 years of history and expertise in banking, Barclays operates in more than 50 countries and employs 123,000 people. Barclays moves, lends, invests and protects money for over 27 million customers and clients worldwide. Approximately 50 percent of its profit now comes from outside the UK. According to the Barclays PLC Annual Report 2006, its profit before tax rose 35 percent over the previous year to 7.136 billion pounds and its earnings per share went up by 32 percent to 0.719 pounds. Barclays' announcement on July 23 showed, in the first half of 2007, its profit before tax increased 12 percent to 4.101 billion pounds and earnings per share rose 14 percent to 0.414 pounds. Source: www.barclays.com